5 Payroll Blunders Small Consulting Companies Make and How to Steer Clear of Them
There was palpable tension in the office. Sarah had spent the morning preparing for a big presentation to a major client, only to now face a line of disgruntled employees waiting outside her office door. Three more team members noticed they were overpaid — missing overtime, different tax withholdings, and a nonexistent bonus, which had been promised weeks before. Sarah, owner of a burgeoning consulting agency, felt her stomach drop. The team had to concentrate on wrapping up deliverables for tomorrow’s deadline, not struggle with payroll problems.
Sound familiar? For small consulting firm owners, payroll snafus aren’t merely administrative headaches — they take your talent away from billable time, erode trust, and potentially tarnish your hard-won professional reputation. The good news? And all of them are entirely avoidable.
Here are the five most common payroll mistakes small consulting firms make and how to avoid them.
1. Read Manual Processing and Calculation Errors
That spreadsheet you copied/pasted from when you hired your first employee was great, but eventually, it’s fine—but manual calculations are a ticking time bomb. Just one misplaced decimal or formula error can cascade into serious trouble.
“Payroll was something we thought we could save money on by doing it in-house,” admits Tom, a strategy consultant who now uses automated payroll processing. Then, we found out we had been miscalculating overtime for months. The cost to fix those errors was ten times what we would have paid for an appropriate system.”
Solution: Adopt a cloud-based payroll solution that integrates seamlessly with your accounting and time clock software. Modern solutions automatically calculate taxes, deductions, and benefits and provide digital pay stubs accessible 24/7 to employees.
“System Six truly upgraded our entire accounting system to precise and reliable systems,” says one consulting firm owner. “Payroll now runs automatically, and I can spend my time on client considerations instead of reconciliations.”
2. Misclassifying Workers
Consulting firms usually employ a mix of full-time employees and independent contractors in those roles. However, misclassifying workers can result in severe tax penalties and legal problems.
The IRS and Department of Labor are increasingly critical of worker classification. If you classify someone as an independent contractor but control how and when the work is done—providing equipment, dictating the hours worked, directing the day-to-day work—you
may be subject to penalty amounts that are not insignificant.
Solution: Create criteria for classification by IRS guidelines. Consider these key questions:
- Are you able to regulate the way the worker does their work?
- Do you supply the tools and equipment?
- Is it an ongoing relationship instead of a project-based one?
- Is this work central to your core business?
- If you answered “yes” to these questions, you likely have an employee, not a contractor. If in doubt, seek out a payroll expert with an in-depth knowledge of the consulting industry’s distinct staffing models.
3. Poor Documentation & Record-Keeping
How quickly can you find the relevant information when an employee questions their paycheck? If the answer involves digging through email chains or searching multiple systems, you have a recipe for trouble.
“Before I had proper record-keeping in place, I would spend several hours each month just hunting through records to answer basic payroll questions,” says a management consultant. “That was time that I could have been with clients.”
Solution: Keep complete electronic records of all payroll transactions, time cards, tax filings, and employee communications. Good documentation not only assists with employee questions but is critical in the event of tax audits or inquiries from the Department of Labor.
Think of making a central digital home with these:
- Time and attendance records
- Salary adjustment history
- Authorize tax withholdings
- Bonus calculation and approval
- Leave balances and history
“With organized payroll documentation, we can answer employees’ questions in minutes instead of days,” says one SystemSix client. My team knows their compensation is in professional hands, and they can return to doing what they do best.”
4. Failing to Meet Tax Deadlines and Filing Requirements
Small consulting firm owners whom you’ve put in 60–70 hours a week are typically fully occupied managing a palace of moving parts centered around client projects, business development, and operations and are often overwhelmed by the tangled mess that is federal, state, and local tax deadlines.
Missing a payroll tax deadline comes with penalties beyond late fees — it can lead to audits and jeopardize your ability to compete for contracts that require proof of taxes owed. Such problems can be especially damaging for consulting firms, where reputation is everything.
Solution: Set up a payroll tax calendar that reminds you well before any upcoming submission deadlines. Use a payroll service that automatically files your tax forms and stands behind their work.
“I’m no longer worried about missing tax dates,” says one SystemSix client. “The system tracks everything, which gives me peace of mind, particularly during our busiest season when our clients demand the most.
5. No Visible Policies or Communication
Most payroll disputes are not due to calculation mistakes but misunderstandings about policies. When are expense reimbursements processed? How are bonuses calculated? What if an individual works across multiple client projects with different billing rates?
And employees are left to their own devices to make assumptions that frequently fall short of reality, leaving them disappointed and agitated.
Solution: Create a solid payroll policy document outlining:
- Payment schedule and payment methods
- Calculating Overtime for Eligible Employees
- Submission and approval timelines for expenses
- Bonus structure & calculation methods
How to handle payroll questions
Share this document with new hires and keep it visible to all team members. Consider holding short quarterly sessions to answer common questions and reinforce policies.
Stopping the cycle of payroll errors
Payroll errors can seriously damage your bottom line, but they also affect your business’s ability to pay and retain top talent in an increasingly competitive consulting sector. When employees wonder whether they’re being compensated correctly at work, they spend less time delivering exceptional client work and more time tracking their pay.
One consulting firm owner shared: ”In automating our payroll systems, employee satisfaction scores rose by 22%. Most importantly, we allow our team to use their brainpower to solve client problems and not stress about administrative mistakes.”
The most successful consulting firms know that payroll is more than a back-office function℠ ; it’s critical to both your employee experience and your operation. By overcoming these five common mistakes, you will liberate yourself to spend your time doing what you do best —providing incredible value to your clients.
Let’s solve your consulting firm payroll nightmares! Start by reviewing your existing process against these five frequent errors. Your team — and your stress levels — will thank you.
About System Six
Founded in 2009, System Six is a Seattle-based bookkeeping and accounting services provider. We are a cloud accounting firm serving 175+ clients coast to coast in the U.S., with a niche focus on the small to mid-sized business and nonprofit sectors. We are a team of 35+ expert specialists providing services in bookkeeping, payroll processing, accounts payable, tax compliance support, technology implementation, and more. We’re on a fixed-fee basis, charging against weekly recurring work ranging from around $400 to $800, depending on the work complexity. Our clients describe us as having “revolutionized their accounting systems to become correct and reliable means,” enabling them to spend time growing their business rather than worrying about cash flow, payroll, or compliance nightmares. For further details, click on www. systemsix.
